IRS’ ‘chosen people’

Tuesday March 30, 2004

Taxpayers deserve to know whether they’re being treated fairly by the IRS. The secret agreement between the agency and Scientologists should be open to scrutiny.

What kind of special tax privileges are members of the Church of Scientology receiving that members of other religions are not? That is a question the Internal Revenue Service refuses to answer – even for a federal appeals court.

The IRS claims it has a legal obligation to keep tax return information confidential, and for years it has extended that justification to the details of a 1993 agreement between the church and the IRS. Reportedly, in exchange for the church dropping thousands of lawsuits against the agency and a $12.5-million payment, the church was given a host of benefits, including having the IRS drop tax audits of 13 Scientology organizations, wipe away significant payroll taxes and penalties, and establish a tax deduction for Scientologists who participate in “training and auditing.” This tax deduction was awarded even after the U.S. Supreme Court ruled that no special tax treatment for the church’s training and auditing practices was warranted.

Two years ago, the secrecy of this agreement was denounced by the 9th Circuit U.S. Court of Appeals in a case involving an orthodox Jewish couple that claimed the IRS gave Scientologists denominational preference. At the time, the IRS refused to turn over a copy of the agreement to the court, which noted sardonically in its ruling that this “secret” document had been reprinted in the electronic version of the Wall Street Journal.

In the end, the court ruled against the couple, Michael and Marla Sklar, who had pointed to the IRS’ deal with Scientologists as a basis for claiming a deduction for their children’s Jewish schooling. The court said that the Sklars were not entitled to the deduction because they received market value for their tuition payments. Charitable deductions to religious organizations are supposed to be available only in exchange for an “intangible religious benefit.”

But in a concurring opinion, Judge Barry Silverman encouraged future litigation on the special tax status of Scientologists. “If the IRS does, in fact, give preferential treatment to members of the Church of Scientology – allowing them a special right to claim deductions that are contrary to law and rightly disallowed to everybody else – then the proper course of action is a lawsuit to stop that policy,” Silverman wrote.

In a trial that began in Los Angeles on Wednesday, the Sklars were back in court challenging what they see as an inherent unfairness in the way the tax code is applied to religions other than the Scientologists. But the 9th Circuit is correct. The response to this disparity should not be an expansion of tax deductibility for religious training but closer scrutiny of the tax benefits extended to Scientologists for their one-on-one paid “auditing” sessions with counselors.

And as to the “secret” agreement between the IRS and Scientologists, it is time to open that document to the public. The law demands special disclosures by tax-exempt organizations such as churches; and the public has a right to know the details of any agreement relative to a church’s tax exemption. Moreover, as a matter of public policy, any IRS contract that creates a new deduction for an entire class of taxpayers should be disclosed to the public. Otherwise there may be beneficiaries who are left in the dark.

The Church of Scientology may routinely operate by shrouding its practices, but its interactions with government should be a matter of public record. Taxpayers need to know if they are being treated fairly and whether the IRS, as Judge Silverman queried, has made Scientologists its “chosen people.”